Can Tesla Deliver on its Model 3 Promises?

Tesla is burning money fast, but the company is having trouble meeting its goals for production of Model 3 sedans. Tim Higgins and Susan Pulliam report in The Wall Street Journal that Tesla must increase its production numbers to 5,000/per week by June, or suffer severe financial consequences. They write:

In April, Tesla will reveal whether it is on track to meet an ambitious second-quarter targetof producing 5,000 Model 3s a week—a goal that it already twice delayed. The Model 3 is Tesla’s mainstream electric-car offering, priced more affordably than Tesla’s luxury models, and a key part of Mr. Musk’s strategy to broaden the company’s business.

Meeting the goal of 5,000 Model 3s a week by the end of June is critical to generating enough cash to sustain operations without having to raise more capital. Tesla burned through on average about $1 billion a quarter last year, largely because of heavy investments to bring production of the Model 3 online. That left it with nearly $3.4 billion in cash at year-end, suggesting that at a similar pace it would be out of cash later this year unless it can raise more funds or substantially boost production.

UBS analyst Colin Langan calculates that Tesla will continue burning cash until it reaches the 5,000-a-week inflection point for a quarter, a milestone that he calculates would generate about $1 billion in working capital in the short term.

If Tesla can’t meet the goal, it would face greater pressure to raise money from the debt or equity markets, which could be challenging if investors lose confidence. Tesla says it has $2 billion in unused credit facilities and funds, though some of the capital is subject to specific conditions for use. However, it also faces higher interest payments tied to $10 billion in debt and increased costs associated with the production ramp.